by Terry Featherstone

Created on: December 27, 2009   Last Updated: February 07, 2010

What you need to know now as we enter “tax season 2010” are the tax changes for tax year 2009. Every year Congress tweaks the tax code, sometimes just before the close of the tax year. No two tax years are ever the same. In a quiet year, most of the changes involve the annual inflation-adjusted figures. These figures, such as standard deduction, personal exemption, maximum IRA contribution, Social Security income cap, and so on, predictably increase every year. Tax year 2009 was NOT a quiet year. Hold on tight. It's a wild ride this year, with lots of surprises and a couple of potential nasty bumps.

You can find the annual predictable changes in the latest IRS Publication 17.  You should make it a practice to order a new Pub 17 every new year. It's free. Pub 17 addresses nearly every question that may arise on a 1040, 1040A or 1040EZ.  Where more detail is required, Pub 17 refers you to the appropriate IRS publication.  It contains an overview of all the changes for the current tax year.

This year saw significant changes in the tax code, many of which may be temporary.

*Making Work Pay

The Making Work Pay credit is a case of good news, bad news. First the bad news. You may have to pay back some of “The Making Work Pay” stimulus payment you received. You may not have even realized you had been receiving payments your employer simply withheld less income tax, making your take home pay a little more than otherwise. The problem is you are only allowed $400 ($800 married filing jointly) for the year.

Some of you got more than $400. Maybe you had two jobs. Neither employer knew what the other was doing. Or maybe you received the payments bundled with your unemployment benefits. For the life of me, I do not understand why the some states did not cut off the payments once you had received the $400. You will have to return the excess payment. But the good news, the first $2400 of unemployment benefits is nontaxable this year.

*Tax Benefits Associated with Children

If you are divorced, noncustodial parent claiming an exemption for a child, this year you must get a Form 8332 or similar statement signed by the custodial parent. You may no longer attach certain pages from your divorce decree or separation agreement. If the custodial parent refuses to sign, you have no exemption for the child.

Prior to 2005, the IRS used differing definitions of a child depending on the tax purpose.  In 2005, the IRS created the UDC, or uniform

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